Envestnet Reports Third Quarter 2017 Financial Results

November 08, 2017 04:05 PM Eastern Standard Time

CHICAGO--(BUSINESS WIRE)--Envestnet (NYSE:ENV), a leading provider of intelligent systems for
wealth management and financial wellness, today reported financial
results for its third quarter ended September 30, 2017.

Three Months Ended

Nine Months Ended

Key Financial Metrics

September 30,

%

September 30,

%

(in millions except per share data)

2017

2016

Change

2017

2016

Change

GAAP:

Total Revenues

$

175.6

$

149.2

18

%

$

500.8

$

422.7

18

%

Net Loss

(1.3

)

(4.1

)

(67

%)

(20.9

)

$

(23.0

)

(9

%)

Net Loss per Diluted Share

$

(0.03

)

$

(0.09

)

(67

%)

$

(0.48

)

$

(0.54

)

(11

%)

Non-GAAP:

Adjusted Revenues(1)

$

175.6

$

149.5

17

%

$

500.9

$

423.5

18

%

Adjusted EBITDA(1)

34.8

27.5

26

%

90.2

69.1

30

%

Adjusted Net Income(1)

17.3

12.5

39

%

41.9

29.5

42

%

Adjusted Net Income per Diluted Share(1)

$

0.37

$

0.28

32

%

$

0.91

$

0.67

36

%

“Envestnet’s strong execution continued through the third quarter, as we
delivered solid organic growth in both revenue and earnings,” said Jud
Bergman, Chairman and CEO. “Customers continue to seek innovative ways
to broaden their end-client relationships and expand their reach through
the adoption of intelligent systems for wealth management and financial
wellness.”

“We continue to see growth opportunities in 2018 and beyond, both
organic and from acquisition, including the FolioDynamix transaction,
which we expect to close early next year,” concluded Mr. Bergman.

Financial Results for the Third Quarter of 2017 Compared to the Third
Quarter of 2016:

Total revenues increased 18% to $175.6 million in the three months ended
September 30, 2017 from $149.2 million in the three months ended
September 30, 2016. Asset-based revenues, which were 60% of total
revenues for the third quarter of 2017 and 2016, increased 18% from the
prior year period. Subscription and licensing revenues increased 21%
from the prior year period.

Total operating expenses for the third quarter of 2017 increased 14% to
$171.3 million from $150.4 million in the prior year period. Cost of
revenues increased 19% to $56.1 million for the third quarter of 2017
from $47.3 million for the third quarter of 2016. Compensation and
benefits increased 14% to $68.6 million for the third quarter of 2017
from $60.3 million for the prior year period. Compensation and benefits
were 39% of total revenues for the third quarter of 2017, compared to
40% for the prior year period. General and administration expenses
increased 19% to $31.2 million for the third quarter of 2017, from $26.2
million for the prior year period. General and administrative expenses
were 18% of total revenues for the third quarter of 2017, compared to
18% for the prior year period.

Income from operations was $4.3 million for the third quarter of 2017
compared to a loss of $1.3 million for the third quarter of 2016. Net
loss attributable to Envestnet, Inc. was $1.3 million, or $0.03 per
diluted share, for the third quarter of 2017 compared to a loss of $4.1
million, or a loss of $0.09 per diluted share, for the third quarter of
2016.

Adjusted Revenues(1) for the third quarter of 2017 increased
17% to $175.6 million from $149.5 million for the prior year period.
Adjusted EBITDA(1) for the third quarter of 2017 increased
26% to $34.8 million from $27.5 million for the prior year period.
Adjusted Net Income(1) increased 39% for the third quarter of
2017 to $17.3 million from $12.5 million for the prior year period.
Adjusted Net Income Per Share(1) for the third quarter of
2017 increased 32% to $0.37 from $0.28 in the third quarter of 2016.

FolioDynamix Acquisition

On September 25, 2017, the Company announced that it will acquire
FolioDynamix, a provider of integrated wealth management technology
solutions, for $195 million. The transaction is expected to close in the
first quarter of 2018.

Outlook

The Company provided the following outlook for the fourth quarter and
full year ended December 31, 2017. This outlook is based on the market
value of assets on September 30, 2017 and is risk-adjusted with respect
to contributions from client conversions and synergy revenue related to
prior acquisitions.

In Millions Except Adjusted EPS

4Q 2017

FY 2017

GAAP:

AUM/A revenue

$

108.0

-

$

109.0

-

Subscription and licensing revenue

64.0

-

64.5

-

Professional services and other revenue

6.0

-

6.5

-

Revenues

$

178.0

-

$

180.0

$

679

-

$

681

Cost of revenues

$

56.5

-

$

57.0

-

Net Income

-

-

Diluted shares outstanding

47.0

-

Net Income per Diluted Share

-

-

Non-GAAP:

Adjusted Revenues(1)

$

178

-

$

180

$

679

-

$

681

Adjusted EBITDA(1)

$

37.5

-

$

38.5

$

127.5

-

$

128.5

Adjusted Net Income per Diluted Share(1)

$

0.39

-

Included in the fourth quarter and full year 2017 adjusted revenue is an
expected deferred revenue fair value adjustment of approximately $0.0
million and $0.1 million, respectively. The Company does not forecast
net income and net income per share due to the unpredictable nature of
various items adjusted for non-GAAP disclosure purposes, including the
periodic GAAP income tax provision.

Conference Call

Envestnet will host a conference call to discuss third quarter 2017
financial results today at 5:00 p.m. ET. The live webcast can be
accessed from Envestnet’s investor relations website at http://ir.envestnet.com/.
The call can also be accessed live over the phone by dialing (800)
500-0920, or for international callers (719) 457-2642. A replay will be
available two hours after the call and can be accessed by dialing (844)
512-2921 or (412) 317-6671 for international callers; the conference ID
is 1528646. The dial-in replay will be available for one week and the
webcast replay will be available for one month following the date of the
conference call.

About Envestnet

Envestnet, Inc. (NYSE:ENV) is a leading provider of intelligent systems
for wealth management and financial wellness. Envestnet's unified
technology enhances advisor productivity and strengthens the wealth
management process. Envestnet empowers enterprises and advisors to more
fully understand their clients and deliver better outcomes.

More than 59,000 advisors and 2,900 companies including: 16 of the 20
largest U.S. banks, 39 of the 50 largest wealth management and brokerage
firms, over 500 of the largest Registered Investment Advisers, and
hundreds of Internet services companies, leverage Envestnet technology
and services. Envestnet solutions enhance knowledge of the client,
accelerate client on-boarding, improve client digital experiences, and
help drive better outcomes for enterprises, advisors, and their clients.

For more information on Envestnet, please visit www.envestnet.com
and follow @ENVintel.

______________________

(1) Non-GAAP Financial Measures

“Adjusted revenues” exclude the effect of purchase accounting on the
fair value of acquired deferred revenue. Under United States generally
accepted accounting principles (GAAP), we record at fair value the
acquired deferred revenue for contracts in effect at the time the
entities were acquired. Consequently, revenue related to acquired
entities for periods subsequent to the acquisition does not reflect the
full amount of revenue that would have been recorded by these entities
had they remained stand-alone entities.

“Adjusted net income per diluted share” represents adjusted net income
divided by the diluted number of weighted-average shares outstanding.

See reconciliation of Non-GAAP Financial Measures on pages 8-10 of this
press release. Reconciliations are not provided for guidance on such
measures as the Company is unable to predict the amounts to be adjusted,
such as the GAAP tax provision. The Company’s Non-GAAP Financial
Measures should not be viewed as a substitute for revenues, net income
or net income per share determined in accordance with GAAP.

Cautionary Statement Regarding Forward-Looking Statements

The forward-looking statements made in this press release and its
attachments concerning, among other things, Envestnet, Inc.’s (the
“Company”) expected financial performance and outlook for the fourth
quarter and full year of 2017, its strategic operational plans and
growth strategy are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements
involve risks and uncertainties and the Company’s actual results could
differ materially from the results expressed or implied by such
forward-looking statements. Furthermore, reported results should not be
considered as an indication of future performance. The potential risks,
uncertainties and other factors that could cause actual results to
differ from those expressed by the forward-looking statements in this
press release include, but are not limited to, the inability to complete
the Company’s acquisition of FolioDynamix in a timely manner or at all,
the possibility that the anticipated benefits of the Company’s
acquisition of FolioDynamix will not be realized to the extent or when
expected, potential exposure to state and local non-income tax
obligations, the Company’s ability to remediate material weaknesses in
internal controls over financial reporting and associated costs,
difficulty in sustaining rapid revenue growth, which may place
significant demands on the Company’s administrative, operational and
financial resources, fluctuations in the Company’s revenue, the
concentration of nearly all of the Company’s revenues from the delivery
of investment solutions and services to clients in the financial
services industry, the impact of market and economic conditions on
revenues, the Company’s reliance on a limited number of clients for a
material portion of its revenue, the renegotiation of fee percentages or
termination of the Company’s services by its clients, the Company’s
ability to identify potential acquisition candidates, complete
acquisitions and successfully integrate acquired companies, potential
dilution from issuing equity securities or a weaker balance sheet from
using cash or incurring debt to finance acquisitions, the impact of
market conditions on the Company’s ability to issue additional debt and
equity to fund acquisitions, compliance failures, regulatory or
third-party actions against the Company, the failure to protect the
Company’s intellectual property rights, the Company’s inability to
successfully execute the conversion of its clients’ assets from their
technology platform to the Company’s technology platform in a timely and
accurate manner, general economic conditions, political and regulatory
conditions, the impact of fluctuations in interest rates on the
Company’s business, ability to expand our relationships with existing
customers, grow the number of customers and derive revenue from new
offerings such as our data analytic solutions and market research
services and premium FinApps, the results of our investments in research
and development, our data center and other infrastructure, our ability
to realize operating efficiencies, the advantages of our solutions as
compared to those of others, our ability to retain and hire necessary
employees and appropriately staff our operations, in particular our
India operations, and management’s response to these factors. More
information regarding these and other risks, uncertainties and factors
is contained in the Company’s filings with the Securities and Exchange
Commission (“SEC”) which are available on the SEC’s website at www.sec.gov
or the Company’s Investor Relations website at http://ir.envestnet.com/.
You are cautioned not to unduly rely on these forward-looking
statements, which speak only as of the date of this press release. All
information in this press release and its attachments is as of November
8, 2017 and, unless required by law, the Company undertakes no
obligation to publicly revise any forward-looking statement to reflect
circumstances or events after the date of this press release or to
report the occurrence of unanticipated events.

(1) For the three months ended September 30, 2017 and 2016, the
effective tax rate computed in accordance with US GAAP equaled 464.6%
and 29.1%, respectively. For the nine months ended September 30, 2017
and 2016, the effective tax rate computed in accordance with US GAAP
equaled (107.2%) and 31.6%, respectively.

(2) An estimated normalized effective tax rate of 40% has been used to
compute adjusted net income.

Three Months Ended September 30, 2017

Envestnet

Envestnet | Yodlee

Nonsegment

Total

(in thousands)

Revenues

$

135,948

$

39,666

$

—

$

175,614

Deferred revenue fair value adjustment

—

15

—

15

Adjusted revenues

$

135,948

$

39,681

$

—

$

175,629

Income (loss) from operations

$

18,955

$

(3,364

)

$

(11,243

)

$

4,348

Add (deduct):

Deferred revenue fair value adjustment

—

15

—

15

Accretion on contingent consideration and purchase liability

104

—

—

104

Depreciation and amortization

6,414

9,078

—

15,492

Non-cash compensation expense

3,679

2,675

1,694

8,048

Restructuring charges and transaction costs

73

—

4,535

4,608

Non-income tax expense adjustment

571

—

—

571

Severance

1,519

78

—

1,597

Litigation related expense

—

—

—

—

Other gain

—

—

(20

)

(20

)

Loss attributable to non-controlling interest

26

—

—

26

Adjusted EBITDA

$

31,341

$

8,482

$

(5,034

)

$

34,789

Three Months Ended September 30, 2016

Envestnet

Envestnet | Yodlee

Nonsegment

Total

(in thousands)

Revenues

$

114,511

$

34,644

$

—

$

149,155

Deferred revenue fair value adjustment

109

222

—

331

Adjusted revenues

$

114,620

$

34,866

$

—

$

149,486

Income (loss) from operations

$

12,361

$

(8,416

)

$

(5,236

)

$

(1,291

)

Add (deduct):

Deferred revenue fair value adjustment

109

222

—

331

Accretion on contingent consideration and purchase liability

23

—

—

23

Depreciation and amortization

6,362

10,330

—

16,692

Non-cash compensation expense

3,565

2,937

1,052

7,554

Restructuring charges and transaction costs

34

3

961

998

Severance

990

68

—

1,058

Fair market value adjustment on contingent consideration

—

—

349

349

Litigation related expense

—

2,086

11

2,097

Foreign currency and related hedging activity

—

(462

)

—

(462

)

Other loss

—

—

11

11

Loss attributable to non-controlling interest

145

—

—

145

Adjusted EBITDA

$

23,589

$

6,768

$

(2,852

)

$

27,505

Nine Months Ended September 30, 2017

Envestnet

Envestnet | Yodlee

Nonsegment

Total

(in thousands)

Revenues

$

386,638

$

114,179

$

—

$

500,817

Deferred revenue fair value adjustment

36

84

—

120

Adjusted revenues

$

386,674

$

114,263

$

—

$

500,937

Income (loss) from operations

$

48,277

$

(16,707

)

$

(27,833

)

$

3,737

Add:

Deferred revenue fair value adjustment

36

84

—

120

Accretion on contingent consideration and purchase liability

408

—

—

408

Depreciation and amortization

19,196

27,596

—

46,792

Non-cash compensation expense

11,571

8,137

3,743

23,451

Restructuring charges and transaction costs

768

—

9,467

10,235

Non-income tax expense adjustment

1,734

—

—

1,734

Severance

1,942

302

16

2,260

Litigation related expense

—

1,033

—

1,033

Other loss

—

—

5

5

Loss attributable to non-controlling interest

377

—

—

377

Adjusted EBITDA

$

84,309

$

20,445

$

(14,602

)

$

90,152

Nine Months Ended September 30, 2016

Envestnet

Envestnet | Yodlee

Nonsegment

Total

(in thousands)

Revenues

$

328,417

$

94,267

$

—

$

422,684

Deferred revenue fair value adjustment

114

667

—

781

Adjusted revenues

$

328,531

$

94,934

$

—

$

423,465

Income (loss) from operations

$

32,425

$

(33,728

)

$

(19,078

)

$

(20,381

)

Add (deduct):

Deferred revenue fair value adjustment

114

667

—

781

Accretion on contingent consideration and purchase liability

143

—

—

143

Depreciation and amortization

18,786

31,086

—

49,872

Non-cash compensation expense

9,151

12,186

4,535

25,872

Restructuring charges and transaction costs

361

34

4,089

4,484

Severance

2,019

747

338

3,104

Fair market value adjustment on contingent consideration

—

—

838

838

Litigation related expense

—

3,824

241

4,065

Foreign currency and related hedging activity

—

(462

)

—

(462

)

Other loss

—

—

23

23

Loss attributable to non-controlling interest

787

—

—

787

Adjusted EBITDA

$

63,786

$

14,354

$

(9,014

)

$

69,126

As of

September 30,

December 31,

March 31,

June 30,

September 30,

2016

2016

2017

2017

2017

(in millions except accounts and advisors data)

Platform Assets

Assets Under Management (AUM)

$

101,924

$

105,178

$

113,544

$

122,543

$

131,809

Assets Under Administration (AUA)

231,831

241,682

248,445

271,450

293,963

Subtotal AUM/A

333,755

346,860

361,989

393,993

425,772

Licensing

721,690

748,125

763,372

825,829

867,967

Total Platform Assets

$

1,055,445

$

1,094,985

$

1,125,361

$

1,219,822

$

1,293,739

Platform Accounts

AUM

519,717

545,130

574,132

614,973

652,060

AUA

961,590

994,583

986,554

1,083,417

1,145,050

Subtotal AUM/A

1,481,307

1,539,713

1,560,686

1,698,390

1,797,110

Licensing

4,394,670

4,558,883

4,263,002

4,811,390

4,925,146

Total Platform Accounts

5,875,977

6,098,596

5,823,688

6,509,780

6,722,256

Advisors

AUM/A

35,861

36,483

36,985

38,498

40,379

Licensing

16,191

17,852

18,159

19,007

19,104

Total Advisors

52,052

54,335

55,144

57,505

59,483

The following tables summarize the changes in AUM and AUA for the three
months ended September 30, 2017:

Asset Rollforward - Three Months Ended September 30, 2017

As of

Gross

Net

Market

As of

6/30/2017

Sales

Redemptions

Flows

Impact

9/30/2017

(in millions except account data)

Assets under Management (AUM)

$

122,543

$

10,585

$

(5,178

)

$

5,407

$

3,859

$

131,809

Assets under Administration (AUA)

271,450

24,279

(10,873

)

13,406

9,107

293,963

Total AUM/A

$

393,993

$

34,864

$

(16,051

)

$

18,813

$

12,966

$

425,772

Fee-Based Accounts

1,698,390

98,720

1,797,110

The above AUM/A gross sales figures include $9.7 billion in new client
conversions. The Company onboarded an additional $12.4 billion in
licensing conversions during the third quarter, bringing total
conversions for the quarter to $22.1 billion.